By Lawrence G. Lavengood, Kellogg School Professor Emeritus
of Business History

Operating within the environment of market capitalism,
as it exists in North America and elsewhere, any legitimate
business doing well financially must be advancing social
good also. This is true because society demands it, arranging
rules and opportunities to make it happen. From society’s
perspective, the purpose of a business system is to promote
social well-being. Society’s political processes, which
sanction how economic resources are allocated, developed,
made usable and distributed, ordain the composition and powers
of business enterprises. Market capitalism enjoys necessary
political support wherever society perceives that free markets
efficiently and innovatively supply a satisfying output of
good things: desired products and services at affordable
prices; employment; invigorating incentives; and public revenue.
These elements amount to the essential goodness that must
accompany doing well economically.

To ensure a socially satisfying performance
from what otherwise could degenerate into a nursery for
free-booting greed, society
relies on three principal mediators between capitalism
and public welfare: competition, public regulation and
moral
conduct. The first two have universal recognition and acceptance
as necessary elements of capitalist systems. Moral conduct,
the third mediator, is less well understood, though clearly
most successful managers try to express it in their operative
values.

But why is moral conduct important for business
enterprise? The answer rests on an understanding of what
moral conduct
is. It is the practice of the ethical virtues that long
historic experience has shown as basic for perpetuating
humanness.
Examples of chief moral virtues are truth-telling, promise-keeping,
respect for personhood, fairness, fidelity, tolerance
and distinguishing between mine and thine. The purpose
of virtue
is creating trust among humans as fellow rights-bearers — and
the significance of trust for a business is enormous. Economic
thriftiness made possible by reliance on trust can amount
to a fortune in any sizable organization. Imagine what the
routines and major projects of business would cost if truth-telling
among participants could not be taken for granted, if every
expectation had to be detailed in a formal contract, if employee
morale and supplier relations festered because of managers’ perceived
inattention to fairness and respect for human dignity. Morality
matters, to the point that the practice of virtue and its
inculcation throughout the business is both a measure of
management excellence and a way of “doing good” for
the surrounding civil society, which appreciates models of
conscientious moral virtue.

The idea of “doing good while doing well” includes,
however, regard for social contributions that have no necessary
close relation to the business of business. Providing management
assistance to charities is an example, as are nonvocational
outreach programs to elementary and secondary schools, and
donating money and facilities for nonbusiness civic projects.

Management’s defense of these kinds of activity usually
contains a genuflection to public relations and the general
assurance that such things are “good for business.” These
claims have been disputed by hard-headed profit maximizers
and advocates of the view that such generosities should come
from individual resources, not from corporations spending
their owners’ money on charitable projects of the managers’ choosing,
which are no part of the social mandate given to free-market
enterprises.

There is force in these rebuttals, but they
nevertheless now represent a minority view. Well-run businesses
want to
be associated with at least some of the responsibilities
of citizenship in their communities. In addition they often
have conspicuous power and sufficient funds to make a praiseworthy
difference in citizenship contributions to their societies.
There should be care in its application, but the reigning
perception is that good businesses want to live in their
communities, and not just be there.